house appraisal value | How to calculate the market value of a house

How to calculate the market value of a house




Market Value Assessment
The role of the evaluator
Whether you are a seller or a buyer, estimating the market value of a property is an activity that must take into account a multitude of factors.

In order to help you see clearly and avoid certain pitfalls, here are the elements to consider.

Municipal evaluation
The value used by municipalities for taxation purposes is to be avoided in the determination of market value. Since it is established 18 months before it comes into force and serves a 3-year role, it does not always reflect recent market fluctuations.

As a result, market values ​​may exceed municipal assessments by several percentage points. In 2015, a Centris Statistics study showed that selling prices in a Montreal neighborhood were 38% higher than municipal assessments. If this example is extreme, the reverse has also been found in some sectors.1

No matter the situation, and although it can give a very general idea, it is best not to be so proud. Buying below or selling above the municipal assessment does not guarantee a good shot.

house with white sign in front

Methods of assessing market value
There is more than one way to estimate the market value of a property, but the "peer method" is the most common because of its simplicity. It consists of comparing the building with others with similar characteristics that have recently been sold in the same sector. It is normally suggested to rely on a sample of at least 4 comparables. Positive or negative adjustments are then applied according to the differences.

For example, if your comparable all have a double garage, while your property has only a single garage, it should be revised downward. A professional is obviously better equipped to make these adjustments, but you can still make a good start with this approach.

In its most simplistic form, the replacement cost technique consists of calculating the land value and the replacement cost of the building and land. Note that other factors influence the calculation. It is used especially when it is difficult to find comparables (inactive market, specific or non-standard building, new construction).

For rental properties, the income method roughly consists of applying a discount rate on net income.

In the two previous cases, unless you have a solid foundation in valuation and real estate finance, it is advisable to refer to a professional.

facade of a house

The evaluators
Given the importance of a real estate transaction, the cost of obtaining the expertise of a professional appraiser is usually worth it. For a bungalow or condo type property, we will spend about $ 400 to $ 600.

If the evaluation is below what you had hoped for, perhaps it would be profitable to do some work. In this case, see our article "How to find a good construction contractor".

When it comes to choosing the service provider, we advise you to do business with a member in good standing of the Ordre des evaluateurs agréés du Québec (OAEQ). Non-member professional evaluators can also provide excellent services. Be aware, however, that unlike their certified colleagues, they are not governed by the strict Professional Code.

The primary duty of an appraiser is to give you the right time on the value of your property, taking into account various factors recognized by their profession. Of course, some real estate brokers have knowledge of valuation and can, in many cases, correctly estimate the value of a given property. However, it is recommended to deal with an independent person who is subject to a professional order.

Your needs and wishes
Even with the help of an expert, it remains an estimate. Your personal situation must also affect your selling or buying price.

For example, if the supply is greater than the demand in the desired sector, take the time to shop and negotiate.

Moreover, to learn more about the art of trading, see our article "Tips for negotiating the purchase or sale of a house."

To remember
The value used by municipalities for taxation purposes is to be avoided in the determination of market value.
Given the importance of a real estate transaction, the cost of obtaining the expertise of a professional appraiser is usually worth it. For a bungalow or condo type property, we will spend about $ 400 to $ 600.
Even with the help of an expert, it remains an estimate. Your personal situation must also affect the selling price or what you are willing to pay.